Image source: Getty Images
A collection of fallen coins recently caught my eye. Tell them (LSE:SHI) has dropped recently, is there a chance it will recover to increase my holdings? Should I be looking to buy stocks now on the cheap?
Building supplies business
SIG is a specialty building supplies company that manufactures roofing, roofing and other interior products. It has a global presence supported by its nearly 8,000 employees.
As I write, SIG shares are trading at 32p, putting them in penny stock territory. A year ago, the stock was trading for 47p, which means it has fallen 31% over the past 12 months. It’s worth noting that many stocks have fallen in recent months due to macroeconomic headwinds and the tragic events in Ukraine.
Challenges that need attention
As mentioned above, macroeconomic and geopolitical factors are negatively impacting SIG shares. I believe these same challenges will affect investor sentiment, as well as performance and returns, for some time to come.
High inflation has led to an increase in the cost of raw materials. This is bad news for an equipment manufacturer like SIG. Increasing costs can put pressure on profit margins. Price increases may cause customers to look elsewhere for cheaper options.
Spending on construction projects can also be reduced. This could have an adverse effect on SIG’s demand, balance sheet and returns.
The positives and my decision
SIG released its half-year report for the six months to 30 June 2022, which I found positive. Revenue, like-for-like sales, operating profit and margin increased compared to the same period last year. SIG pointed to inflation but said it was able to mitigate the impact due to higher product and service standards.
Further, although the risk of short-term demand issues is large with the current volatility, I believe that SIG has higher demand and long-term growth. Because in general, the European construction market is growing. A prime example of this is the current UK housing market. As demand outstrips supply, many homebuilders are looking to fill this gap. SIG products are important for many aspects of construction, so it can be useful here.
Ultimately, SIG’s insulation products could drive growth for the company. Because energy bills are rising all over the world, especially here in the UK, many are turning to these products to help with the cost of these bills. SIG may experience an increase in demand, which may increase performance and return.
In conclusion, I believe that SIG could be in line for real growth in the long term. The latest marketing update is a step in the right direction. Despite this, to me, there is currently too much tied to SIG’s success, especially in such severe economic uncertainty. I will keep SIG shares on my watch list for now, but I believe there are better coin stock options for my holdings.